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07/29/87 Wencordic Enterprises, Inc v. . Berenson

July 29, 1987

WENCORDIC ENTERPRISES, INC., PLAINTIFF-APPELLEE AND CROSS-APPELLANT

v.

IRVING M. BERENSON, DEFENDANT-APPELLANT AND CROSS-APPELLEE



APPELLATE COURT OF ILLINOIS, SECOND DISTRICT

511 N.E.2d 907, 158 Ill. App. 3d 913, 110 Ill. Dec. 730 1987.IL.1086

Appeal from the Circuit Court of Lake County; the Hon. Wallace B. Dunn, Judge, presiding.

APPELLATE Judges:

JUSTICE WOODWARD delivered the opinion of the court. REINHARD and UNVERZAGT, JJ., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE WOODWARD

The defendant, Irving M. Berenson (Berenson), appeals from the judgment of the circuit court which ordered him to return 40 shares of Wencordic Enterprises, Inc., and $27,200 in dividend payments to plaintiff. Plaintiff, Wencordic Enterprises, Inc. (Wencordic), cross-appeals the circuit court's decision denying its requested relief for a constructive trust to be imposed on the $5,000 Federal Housing Administration refund received by defendant, $12,507.50 in cash legal fees, and stock distribution made prior to August 6, 1984, in the amount of $24,700 and denying it leave to amend its pleadings to conform to the proof insofar as the plaintiff's alleged unauthorized practice of law. Further plaintiff requests judgment in its favor against Berenson for the return of his limited partnership share and all distributions related thereto plus the post-trial payment not covered by the court's order.

Late in 1968, Irving Berenson and Wendell Studebaker met concerning the development of a nursing home in Zion, Illinois, upon property owned by the Studebaker family. Berenson, an attorney licensed to practice in Wisconsin, had served for a number of years as counsel to Sheridan Nursing Home in Kenosha, Wisconsin. Defendant agreed to do certain legal work for one share of the entity to be formed. The extent of the legal work to be performed for that one share was never clarified. Defendant testified at trial that he understood that he would receive one share of the enterprise for his work in obtaining financing from the Federal Housing Authority. Wendell Studebaker testified that his understanding was that the legal work for the one share encompassed everything necessary to get the nursing home "up and around."

In 1968, defendant set up a limited partnership, known as Park Manor Limited Partnership, for the ownership of the nursing home, and, in 1969, he incorporated the plaintiff, Wencordic, an Illinois corporation, as the general partner of said partnership. The corporation elected to be taxed as a subchapter S corporation under the Internal Revenue Code, upon defendant's advice. Park Manor had a total capitalization of $200,000. Plaintiff corporation had a 30% interest in Park Manor, while the limited partners possessed the remaining 70%. There were 14 limited partners, each holding a 5% interest in Park Manor. Wencordic's contribution was the Zion, Illinois, real estate which was owned by the Studebaker family.

Defendant, who was plaintiff's attorney and also secretary/treasurer of the corporation, was directly involved in the activities essential to the creation of the nursing home. He found investors and set up the limited partnership. Defendant successfully negotiated with the FHA to finance construction of the nursing home. He obtained a variation from the Environmental Protection Agency to permit building of the structure. The work involved in getting the nursing home on track far exceeded the personal estimate of the time and effort to be expended by the defendant, as determined by the defendant. From 1969 to 1973, defendant complained on a regular basis to various members of the Studebaker family about the amount of work that he was doing and that it was beyond what he had originally calculated as necessary to get the nursing home up and running. For his legal work defendant received one share of the limited partnership, which was valued at $10,000.

Defendant claims that in June 1973 he submitted to the Wencordic board a bill for legal fees incurred from 1969 to 1973. Apparently, these fees were for legal work which was in excess of what defendant had initially agreed to do for his one share of the limited partnership. There is no indication of plaintiff's seriously contesting these fees until the commencement of this lawsuit. Plaintiff contends that it never received a bill for legal services until 1977.

The nursing home opened in April 1973. On May 2, 1973, the Wencordic board of directors authorized 240 shares of stock to be issued. Two hundred shares went to five members of the Studebaker family. Forty shares went to defendant, who asserts that these shares were a gift from plaintiff. Defendant was issued a stock certificate signed by Wendell Studebaker, the president of Wencordic. With his 5% share of the limited partnership and 40 shares of stock (which equalled 5% of the enterprise), defendant possessed 10% of Park Manor.

No corporate resolution explained the distribution of the stock to the defendant. The corporate documents are silent as to the purpose of extending the 40 shares to the defendant.

After the opening of the nursing home in 1973, defendant continued to serve as plaintiff's attorney and remained a director and officer of the corporation.

In 1978, plaintiff began paying defendant the unpaid legal fees, which totaled approximately $13,000, and completed the payment of fees in August 1981. After the legal bill was paid, Wendell Studebaker asked defendant to return the 40 shares of stock issued to the latter in 1973. Defendant refused to do so. In August 1984, plaintiff's board of directors voted to formally request the return of the 40 shares of stock. Prior to this lawsuit, defendant had ...


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